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Beware of Colleges 'No Loan' Claims: They're Still Snatching Our Scholarships

Updated: Feb 15

Author: Zaniya L.

A growing number of postsecondary institutions across the nation have been announcing and promoting no-loan options as part of their efforts to recruit students. However, it is crucial for them to openly acknowledge their scholarship displacement practices. It is important to note that students always have the choice to decline loans; these colleges have simply stopped including loans in their initial financial aid offers. Some schools emphasize that they meet 100 percent of their student’s financial need. It is worth noting that even if a school declares they meet the financial need of their student, those same students may still have an outstanding balance. This is because financial need is determined by a formula. When colleges advertise themselves as a no-loan school, they mean that they won’t automatically include loans in your financial aid package, but you still have the option to borrow them if necessary.

Postsecondary institutions often do not clearly communicate how receiving outside scholarships/aid may impact a student's financial package. Prior to the introduction of the no-loan options, institutions used scholarship displacement practices to reduce various forms of financial aid, including student loans, institutional scholarships, grants, and work-study. While many institutions previously indicated on their websites that they would reduce “loans first,” our research at DISSCHOLARED shows that this was not truly the case.

Now that many institutions have eliminated loans from their initial financial aid packages, the question arises: how do outside scholarships/grants/aid affect a student’s financial aid package in this new landscape?

Here is one example of a college with a no-loan policy and how the college will practice scholarship displacement now that there are no loans incorporated in the financial aid package.

Smith College

In 2021, Smith College announced that it would replace loans with grants in financial aid awards. What they failed to announce was that their school would still practice scholarship award displacement.

What happens if a student at Smith College who receives financial aid receives an outside scholarship?

Smith’s Policy states: “ Outside aid will first reduce or replace the work study portion of your award. If the outside aid exceeds the total work component of your award, we will allow the aid to go toward a one-time computer purchase, or toward the cost of the Smith College Health Insurance (unless you receive a health grant). Any amount of outside aid in excess of the work component of your award plus these costs if applicable, will replace Smith Grant dollar for dollar. State or federal grant assistance reduces Smith Grant dollar for dollar. Outside aid includes outside awards based on student merit, as well as tuition subsidies based on parent employment (Tuition Benefits).”

In this case, if a student receives outside aid, they will have the option to substitute the work-study component of their financial aid package with the external aid. If the external aid surpasses the work-study portion, the college will allow the excess to be applied towards a one-time computer purchase or the cost of Smith College Health Insurance. Any surplus beyond the work-study award and these options will result in a reduction in Smith grants dollar for dollar. Work-study is an important part of college’; there are benefits that come with being part of a federal work-study program.

There’s one more important point to note: any state and federal grants received will directly decrease the Smith Grant on a dollar-for-dollar basis, and it's not possible to use state and federal grants to replace the work-study portion of aid at Smith College.

DISSCHOLARED Scenario (Photo Above):

  • A student was offered a $7,395 scholarship from A University. The federal government provided the student with a Pell Grant of $7,395.

  • The student still has an outstanding balance of $10,000 even after the institutional scholarship and Pell Grant was applied.

  • Once, the institution was notified of the Pell Grant; the institution decreased the institutional scholarship by the same amount of the Pell Grant amount.

  • Now the student only receives the Pell Grant and the student outstanding balance is now $17,395.


1. Read the fine print of a college’s no-loan policy.

2. Read the college’s outside scholarship policy. Search our database or fill out an outside scholarship policy review form to find out an institution's scholarship displacement practice or outside scholarship policy. (

3. Postsecondary institutions may have different outside aid policies regarding different types of outside aid.

4. Reminder: Outside scholarships and grants are considered the following: federal scholarships, federal grants, state scholarships, state grants, external scholarships, private scholarships, military benefits, and other outside scholarships/grants/aid.

To learn more about how you can protect the scholarships of 17.4 million + students nationwide, visit:


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